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While you were sleeping September 13th

European leaders seem to run out of ideas. Also, they do not seem keen to solve Europe’s problems for the long term and are just looking for yet another quick fix.

The latest in “European leaders feed the market frenzy” saga is the announcement yesterday that China is going to invest in Italian bonds. Here are some links – WSJ, FT and Bloomberg – related to the story, which for sometime should have a positive effect on the equity markets especially. Of course I do not expect this action to solve the euro zone’s debt problems. In fact I do not expect to hold the markets for more than one or two days. We are beyond the point were such a solution can be deemed by the market as a credible one for the long term. Also, as it comes from China which is already invested heavily in European bonds it looks to much as a decision to protect their own investment. Another attempt by the Chinese to support the EUR against the USD.

More on EU debt problems here is the Der Spiegel article on the expected Greek Default. Also, Greek default probabilities now at 98% judged by the market, Bloomberg. Looking at these two news together it does make sense for the Germans to have a plan B. But I still do not buy it. It smells too much of “moral suasion” from the Germans. It is their way of telling the Greek government that they are really serious and and that Greece needs to reform further.

For me in the battle of wits between Greece and EU, Greece has the upper hand. I still think the debt restructuring scenario has more chance than flat out default but either one will be used when Greece will find it in its own best interest. EU will do best to worry now about the other countries in Europe with debt problems and especially Italy.

We are not out of the woods by any measure and should expect volatility to remain high. I will have special post later today regarding data released yesterday in Romania.